For the options questions you wanted to ask, but were afraid to.
There are no stupid questions. Fire away.
This project succeeds via thoughtful sharing of knowledge.
You, too, are invited to respond to these questions.
This is a weekly rotation with past threads linked below.
BEFORE POSTING, PLEASE REVIEW THE BELOW LIST OF FREQUENT ANSWERS. .
Don't exercise your (long) options for stock!
Exercising throws away extrinsic value that selling retrieves.
Simply sell your (long) options, to close the position, to harvest value, for a gain or loss.
Your break-even is the cost of your option when you are selling.
If exercising (a call), your breakeven is the strike price plus the debit cost to enter the position.
Further reading:
Monday School: Exercise and Expiration are not what you think they are.
Also, generally, do not take an option to expiration, for similar reasons as above.
Key informational links
• Options FAQ / Wiki: Frequent Answers to Questions
• Options Toolbox Links / Wiki
• Options Glossary
• List of Recommended Options Books
• Introduction to Options (The Options Playbook)
• The complete r/options side-bar informational links (made visible for mobile app users.)
• Characteristics and Risks of Standardized Options (Options Clearing Corporation)
• Binary options and Fraud (Securities Exchange Commission)
.
Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• Options Trading Introduction for Beginners (Investing Fuse)
• Options Basics (begals)
• Exercise & Assignment – A Guide (ScottishTrader)
• Why Options Are Rarely Exercised – Chris Butler – Project Option (18 minutes)
• I just made (or lost) $___. Should I close the trade? (Redtexture)
• Disclose option position details, for a useful response
• OptionAlpha Trading and Options Handbook
• Options Trading Concepts — Mike & His White Board (TastyTrade)(about 120 10-minute episodes)
• Am I a Pattern Day Trader? Know the Day-Trading Margin Requirements (FINRA)
• How To Avoid Becoming a Pattern Day Trader (Founders Guide)
Introductory Trading Commentary
• Monday School Introductory trade planning advice (PapaCharlie9)
Strike Price
• Options Basics: How to Pick the Right Strike Price (Elvis Picardo – Investopedia)
• High Probability Options Trading Defined (Kirk DuPlessis, Option Alpha)
Breakeven
• Your break-even (at expiration) isn't as important as you think it is (PapaCharlie9)
Expiration
• Options Expiration & Assignment (Option Alpha)
• Expiration times and dates (Investopedia)
Greeks
• Options Pricing & The Greeks (Option Alpha) (30 minutes)
• Options Greeks (captut)
Trading and Strategy
• Fishing for a price: price discovery and orders
• Common mistakes and useful advice for new options traders (wiki)
• Common Intra-Day Stock Market Patterns – (Cory Mitchell – The Balance)
• The three best options strategies for earnings reports (Option Alpha)
Managing Trades
• Managing long calls – a summary (Redtexture)
• The diagonal call calendar spread, misnamed as the "poor man's covered call" (Redtexture)
• Selected Option Positions and Trade Management (Wiki)
Why did my options lose value when the stock price moved favorably?
• Options extrinsic and intrinsic value, an introduction (Redtexture)
Trade planning, risk reduction, trade size, probability and luck
• Exit-first trade planning, and a risk-reduction checklist (Redtexture)
• Monday School: A trade plan is more important than you think it is (PapaCharlie9)
• Applying Expected Value Concepts to Option Investing (Select Options)
• Risk Management, or How to Not Lose Your House (boii0708) (March 6 2021)
• Trade Checklists and Guides (Option Alpha)
• Planning for trades to fail. (John Carter) (at 90 seconds)
• Poker Wisdom for Option Traders: The Evils of Results-Oriented Thinking (PapaCharlie9)
Minimizing Bid-Ask Spreads (high-volume options are best)
• Price discovery for wide bid-ask spreads (Redtexture)
• List of option activity by underlying (Market Chameleon)
Closing out a trade
• Most options positions are closed before expiration (Options Playbook)
• Risk to reward ratios change: a reason for early exit (Redtexture)
• Guide: When to Exit Various Positions
• Close positions before expiration: TSLA decline after market close (PapaCharlie9) (September 11, 2020)
• 5 Tips For Exiting Trades (OptionStalker)
• Why stop loss option orders are a bad idea
Options exchange operations and processes
• Options Adjustments for Mergers, Stock Splits and Special dividends; Options Expiration creation; Strike Price creation; Trading Halts and Market Closings; Options Listing requirements; Collateral Rules; List of Options Exchanges; Market Makers
• Options that trade until 4:15 PM (US Eastern) / 3:15 PM (US Central) — (Tastyworks)
Brokers
• USA Options Brokers (wiki)
• An incomplete list of international brokers trading USA (and European) options
Miscellaneous: Volatility, Options Option Chains & Data, Economic Calendars, Futures Options
• Graph of the VIX: S&P 500 volatility index (StockCharts)
• Graph of VX Futures Term Structure (Trading Volatility)
• A selected list of option chain & option data websites
• Options on Futures (CME Group)
• Selected calendars of economic reports and events
Previous weeks' Option Questions Safe Haven threads.
Complete archive: 2018, 2019, 2020, 2021, 2022, 2023, 2024
Options Questions Safe Haven Thread | May 13-19 2024
byu/wittgensteins-boat inoptions
Posted by wittgensteins-boat
2 Comments
Hello All, based on some papers I’ve read I’ve been trying to build a model that predicts whether the absolute price swing of SPY 5 trading days out is greater or less than 1.5%. I chose this number as many of the straddles I calculated seemed to be profitable even at 0dte if the price had swung a little over 1% from the strike price. My model, over 10 years is able to predict with 80% accuracy whether the price of SPY will see a 1.5% swing over the next 5 trading days (from next day’s opening – I.e. the day after the prediction is made).
My logic is that it would be beneficial for a straddle strategy to be able to correctly identify when big swings were likely to happen.
I’m very new to options and just started playing around with a paper money account on IBKR, but I’m wondering for the experienced folks here, does this type of info relating to absolute price changes seem like it would be profitable in trading SPY options using a straddle strategy?
Apologies if I said anything dumb – I just want to know if I’m onto something or chasing up the wrong tree.
Happy to answer any questions as well.
Using ToS cash account and last week, I was able to scalp SPY options many times per day without worrying about settled cash. Today, I made only one trade, and now my orders are canceled because of a lack of settled cash. Anyone able to tell me what may have happened between last week and today?